Affordable housing is rare because it’s illegal to build
This op ed appeared in the Pioneer Press on September 1st, 2019
Few people doubt that the Twin Cities has a shortage of affordable housing. Just recently, the Pioneer Press reported that there are “No St. Paul apartments available for families earning $30,000 or less, report finds.” In April 2017, the Pioneer Press wrote that “Outside coastal states like New York and California, the Twin Cities was No. 1 in housing costs among the nation’s 20 largest metro areas, according to 2014 U.S. Census data. And they have remained at or near the top of other cost-comparison surveys since then. Statewide, Twin Citians pay an average of 26 percent more than neighboring states. That price gap explodes when compared with southern states like Texas.”
Policymakers are not short of proposed policy solutions. St. Paul Mayor Melvin Carter’s administration is exploring new pilot programs that could help lower income families. One possibility includes creating a three-year, $300 rent subsidy for low-income families of children in select St. Paul Public Schools who pay more than 40 percent of their income toward housing. The state government has submitted a request for $180 million in Housing Infrastructure Bonds and $60 million in public housing construction bonds, both for affordable housing projects.
But before we commit to spending hundreds of millions of taxpayers’ dollars, we ought to ask this: Are we treating the problem or the symptom?
After all, high prices are simply a signal that demand, in this case for housing, is high relative to supply. The underlying problem is the shortage of supply of low-cost housing. And just as there is wide agreement that the Twin Cities have an affordable housing problem, there is also wide agreement on its causes: excessive fees and regulations imposed by state and local legislators.
That April 2017 Pioneer Press report, for example, surveyed 60 government officials, builders, Realtors, housing and energy lobbyists, and home buyers on the causes of expensive housing here. They found that “regulations, including energy-saving rules and safety codes, are tougher and costlier than in surrounding states …The cost of metro-area land is elevated by centralized planning, larger mandated lot sizes and a public resistance to development … (and) An increasing use of city fees, tucked into the price of a new house, can add tens of thousands of dollars.”
In February this year, a report commissioned by a builders group, Housing First Minnesota, found that municipal fees and regulations in the Twin Cities are pushing up prices of new homes more sharply here than in other communities, making it nearly impossible to build a single-family house for less than $375,000. Such fees account for up to one-third the cost of a new house here.
By nearly every measure, a new home in the Twin Cities costs more than those in every other comparable Midwest market. An average home in Lake Elmo, for example, would cost $47,000 less in Hudson, Wis., and a new home in the Twin Cities costs as much as $82,000 more than a similar home built by the same builder in the southwestern Chicago suburbs. These regulations include Minnesota’s requirement of a passive radon mitigation system to be installed in new homes, adding $1,500 to the cost of foundation excavation and reparation relative to Wisconsin, or its requirement for sealing of air ducts and its balanced ventilation requirement, which adds another $2,060 to the cost of a HVAC system.
Even worse, a new report from the Housing Affordability Institute finds that Minnesota’s cities are soaking homeowners and not complying with state law. A state rule governing building permits says the fees must be “proportionate to the actual cost of the service for which the fee is imposed” but some cities use building permit revenue to pad their general funds. The city of Corcoran, for example, used the extra fees, amounting to more than $3,000 per new house, to finance a city hall renovation. State law also requires cities, counties, and townships collecting more than $5,000 annually in construction-related fees to submit an annual report to the Minnesota Department of Labor and Industry, but local officials routinely ignore that rule. In 2018, after officials encouraged more compliance, no more than 262 of the state’s approximately 700 municipalities filed the legally required report.
These high fees and regulations are the problem – high prices are just the symptom. To tackle our affordable housing problem we need the supply of that housing to expand. Instead of spending hundreds of millions of dollars dealing with the symptoms, not the underlying problem, our policymakers must remove the barriers to the construction of affordable housing – barriers which, in many cases, they are responsible for erecting.
John Phelan is an economist at the Center of the American Experiment, a non-profit public policy organization based in Golden Valley that advocates for free enterprise, limited government, personal responsibility and government accountability.